A recent trend in the settlement of personal injury matters involves demands by the tortfeasor’s liability insurance company requesting a plaintiff to produce final lien information in regard to Medicare before the matter can be finally concluded and a settlement draft issued. This is so because of the potential penalties that may arise if Medicare liens are not addressed out of the settlement funds.
In response to these demands by liability carriers, there has been a more recent push back by plaintiffs counsel objecting to such requests for documented lien information, particularly where there has been previous confirmation that no such Medicare liens exist.
It seems that the Medicare rules and regulations surrounding the payment of Medicare liens are so obtusely intertwined and worded that even lawyers need other lawyers to fully explain the mandates and requirements of the law.
This makes lawyers nervous. And when lawyers get nervous, litigation is likely to result as they turn to the courts for guidance on how to proceed.
The recurring dispute over whether or not final lien letters from Medicare are required before a settlement can be completed has resulted in a number of recent court decisions. All of these decisions appear to support the conclusion that the settlement of a personal injury action cannot be held up by a demand that a final lien letter be secured from Medicare.
Framework of Medicare Liens
As noted, the Medicare rules on liens are difficult to follow. However, Allegheny County Court of Common Pleas Judge R. Stanton Wettick Jr. aptly summarized the framework of the law in his opinion in the case of Wimberly v. Katruska, PICS Case No. 12-1060 (C.P. Allegheny Co. May 23, 2012 Wettick, J.).
Wettick explained that, under the federal Medicare Secondary Payer Act, Medicare can only pay bills not paid by a “primary payer.” Under the law, if Medicare initially makes a payment of a medical expense and a primary payer is later identified, the primary payer must reimburse the U.S. government for the payment made.
Wettick went on to note that under the Medicare Secondary Payer Act, automobile or liability insurance carriers meet the definition of a primary payer. Therefore, under the law, a liability insurance company paying a settlement can be required to reimburse Medicare under the applicable regulations. The regulations also give Medicare and the Centers for Medicare Services a direct right of action to recover the lien amount from any primary payer.
Thus, there is a valid fear for automobile and liability insurance carriers that, if they pay out a settlement, Medicare could later come after the insurance carrier to pay back a Medicare lien if that lien is not satisfied by the injured party plaintiff out of the settlement proceeds. To guard against this, the insurance carriers have demanded, before the settlement check is issued, that the injured party plaintiffs provide written confirmation from Medicare that there is no Medicare lien to be addressed. In some instances, as a further means of protection, some insurance carriers have even demanded that Medicare be listed as a payee on the settlement draft.
Guidance from Superior Court
In its 2010 decision in the case of Zaleppa v. Seiwell, 9 A.3d 632 (Pa.Super. 2010, Allen, Mundy, and Colville, JJ.), the Pennsylvania Superior Court addressed the propriety of a liability carrier’s demand that Medicare be listed as one of the payees on a settlement check.
In Zaleppa, the plaintiff obtained a $15,000 jury verdict against the defendants, $5,000 of which was for future medical expenses and the remainder of which was for pain and suffering.
In post-trial motions, the defendants argued that the trial court erred in denying the defendants’ request that the court enter an order directing the defendants to pay the verdict either (1) by naming Medicare, along with the plaintiff and her attorneys, as payees on the check satisfying the verdict, or (2) by paying the verdict into court pending notification from Medicare that all outstanding Medicare liens had been satisfied.
In its opinion, the Superior Court noted that there was no evidence presented at the trial court level that any of the plaintiffs’ past medical treatment had been paid by Medicare to date. The Superior Court additionally noted that there was no claim presented by the plaintiff at trial for any past medical expenses because she was precluded from doing so by 75 Pa.C.S.A. 1722 in that the first-party medical benefits under the plaintiff’s own automobile insurance policy had not been exhausted. The Zaleppa court further emphasized, in any event, that the jury did not enter any award for past medical expenses.
The Superior Court therefore upheld the argument by plaintiffs counsel Lenahan & Dempsey of Scranton that there was no legal basis under either federal or Pennsylvania law for the insurance carrier to assert the interests of the U.S. government as to the reimbursement of Medicare liens. As such, the Superior Court held that the trial court properly denied the defendants’ request for an order granting leave to the carrier to list Medicare as a payee on the settlement draft.
It is noted that the Superior Court provides a nice analysis in Zaleppa of a defendant’s (and arguably a plaintiff’s) obligations under the Medicare Secondary Payer Act.
A String of Trial Court Opinions
After the Superior Court took away the possible protection offered by naming Medicare as a payee on settlement drafts, automobile and liability insurance carriers sought out protection from potential Medicare liens by demanding that injured party plaintiffs provide written confirmation from Medicare as to whether or not any Medicare liens existed before a settlement draft would be issued. In response, plaintiffs have refused, demanded immediate payment of the agreed-upon settlement amount and proceeded to courts on motions to enforce the settlement.
These disputes have led to a series of trial court opinions over the past year, all of which have held that a settlement of a claim cannot be held up in this regard. The recent decisions suggest that, instead, the insurance carriers and their insureds should seek to protect themselves by way of clearly worded indemnification clauses in the general release mandating that the injured party agree to protect the insurance carrier should any Medicare lien issue arise in the future.
In both the Cambria County case of Vincent v. Buck, and the Monroe County case of Dailey-Console v. Barnwell, PICS Case No. 11-1115 (Monroe Co. May 18, 2011, Zulick, J.), the trial court judges relied upon the Zaleppa case to support the granting of a plaintiff’s motion to compel a defendant to pay a settlement over the defendants’ objections that Medicare lien issues were not yet resolved. In both decisions, the trial courts emphasized that there was nothing in the general releases entered into between the parties that entitled the defense to insist that certain measures be taken by the plaintiff to ensure the Medicare lien was addressed prior to the issuance of the settlement check.
In Dailey-Console, Judge Arthur L. Zulick granted a plaintiff’s motion to compel a defendant to pay a settlement over the defendants’ objection that Medicare lien issues were not yet resolved.
The Dailey-Console case arose out of a motor vehicle accident. The parties eventually agreed to settle the claims and the plaintiffs signed a general release. However, the defendants did not tender payment of the settlement because they asserted that a Medicare lien existed that had to be satisfied prior to payment as the defendants could potentially be liable for the lien.
The plaintiffs argued that the terms of the release executed by the parties governed the dispute and that, under the release, they were entitled to an immediate payment of the settlement funds. The court agreed.
Reviewing the release between the parties, Zulick found that, although the release contained provisions holding the defendants harmless from payments to a third party and specifically stated that the plaintiffs would be responsible for the satisfaction of any separate Department of Public Welfare Medicaid lien from the settlement proceeds, the release was silent as to any obligation by the plaintiff to obtain clearance from Medicare.
Since the court in Dailey-Console determined that the release was valid as written and that the terms of the release did not address any Medicare lien, the Medicare lien issue could not be relied upon as a roadblock to the enforcement of the release terms, including the payment of the settlement amounts to the plaintiff. In so ruling, Zulick pointed to the Pennsylvania Superior Court decision in Zaleppa.
Similarly, in an April 4, 2011, order in the case of Vincent v. Buck, No. 2011-CV-456 (Cambria Co., April 4, 2011, Swope, S.J.), Cambria County Court of Common Pleas Senior Judge Thomas A. Swope Jr. granted a plaintiff’s motion to enforce a settlement in a case where the carrier refused to issue a settlement check in a motor vehicle accident case until the plaintiff produced documentation confirming the status of any Medicare/Medicaid lien.
In Vincent, the plaintiff’s attorney had provided the liability carrier with copies of letters from Medicare confirming that there were no liens for either of the two plaintiffs involved in this matter (these letters were not, however, “final” confirmation lien letters). The attorney also confirmed that, with respect to one of the plaintiffs, that person’s first-party medical benefits coverage had not yet even been exhausted (meaning the first-party automobile insurance carrier would be responsible to pay the medical bills, not Medicare).
The plaintiffs also emphasized that in the release, which was authored by the automobile insurance carrier, there was no express requirement that the plaintiffs provide any final lien documentation before the payment of the settlement funds as demanded. Furthermore, the release provided that the plaintiffs agreed to remain responsible for any and all liens, including any liens asserted by any federal entity or agency. In the release, the plaintiffs also specifically agreed to indemnify and hold the liability carrier and its counsel harmless for any and all liens that may arise.
In addition to arguing the above, the plaintiffs also pointed to Zaleppa, in which the appellate court held that neither the liability carrier nor the defendant tortfeasor had any legal standing to attempt to act on behalf of Medicare in terms of protecting a lien.
Based on these facts, the court granted the plaintiffs’ motion to enforce the settlement. In its order, the trial court also granted the plaintiffs’ requests for interest on the delayed payment and attorney fees and costs associated with the motion.
This issue was also addressed by Wettick in his May 23 opinion in Wimberly v. Katruska.
In Wimberly, the plaintiff settled her personal injury claims and demanded payment. The defendant and the defendant’s carrier apparently refused to issue the settlement payment until the plaintiff provided a no-lien letter from Medicare. Accordingly, the plaintiff filed a petition to enforce the settlement.
The defense in Wimberly argued that the liability insurance company was entitled to withhold its payment of the settlement until Medicare issued a no-lien letter as that was the only way an insurance company and its insured could avoid potential double payments if the plaintiff did not satisfy any such lien out of the settlement proceeds.
Wettick rejected this argument and, like the other trial court judges, pointed to the Superior Court decision in Zaleppa.
However, because the defendant in Wimberly contended that the parties’ settlement agreement conditioned the payment of the settlement on the receipt of a no-lien letter, the court issued a rule to show cause why the settlement agreement should not be enforced. In issuing the rule, the court noted that the defendant had the burden of establishing an agreement between the parties that the payment was conditioned on the securing of a no-lien letter.
Remedy: Spell It Out In the Release
The cases to date reviewing the impact of Medicare liens on the finalization of personal injury matters have clearly stated that the defense cannot mandate that Medicare be included as a payee on any settlement draft.
The decisions have also clarified that, unless set forth as a requirement in the general release between the parties, the defense cannot require the injured party plaintiff to produce a no-lien letter or final lien letter from Medicare before the settlement check will be issued.
Given the ridiculously slow response time of Medicare to requests for information on any Medicare liens, it is unlikely that plaintiffs will be willing to hold up any settlement payment by an agreement to produce written documentation from Medicare regarding the existence or status of any Medicare lien.
As such, it appears that the more reasonable, and judicially supported, fashion to finalize a personal injury settlement while still protecting the defense from any potential Medicare lien, would be to include language in the general release that (1) provides that the plaintiff agrees to remain responsible for any and all liens, including any liens asserted by any federal entity or agency, including but not limited to Medicare (and/or the Department of Public Welfare/Medicaid), and (2) provides that the plaintiff also specifically agrees to indemnify and hold the defendant and its liability carrier harmless for any and all liens that may arise, including but not limited to any Medicare (or Medicaid) liens.
Daniel E. Cummins is a partner and civil litigator with the Scranton law firm of Foley Cognetti Comerford Cimini & Cummins. His civil litigation blog, “Tort Talk,” may be viewed at www.torttalk.com.